This week, Congress passed, and the President signed, the Budget Control Act of 2011. The bill raises the nation's debt ceiling and makes debt and deficit reductions in federal spending over the next 10 years.[1] Between now and Thanksgiving 2011, a new Joint Committee of Congress will be tasked with seeking $1.2 to $1.5 trillion in further spending cuts. This joint Congressional committee could propose major cuts to, and restructuring of, Medicare, Medicaid and other "safety net" programs. However, if this Committee fails to come to an agreement, or if Congress fails to approve the Committee's recommendations in an up or down vote, a "trigger" is activated leading to a process called sequestration. The trigger would result in across-the-board, automatic cuts to federal spending. Within this sequestration process, certain programs have been protected from such cuts, including Social Security and Medicaid. Cuts to Medicare would be limited to provider payment cuts of no more than 2%. Theoretically, at least, Medicare benefits and services would not be cut.

What is the Process for Cutting Debt?

In a political agreement that raised the debt ceiling by $400 billion (and included a process for further increases prior to 2013), there will be a first round of federal budget cuts totaling almost $1 trillion that take effect October 1, 2011.[2] While many important domestic programs will likely be affected, these immediate cuts exclude Medicare and Medicaid.

The second step in the debt reduction process is an additional $1.2 to $1.5 trillion in cuts, which either will be approved by Congress (voting on proposals put forward by the joint Congressional committee) or will occur automatically (as a result of the trigger and sequestration).

The Joint Committee

Over the next few weeks, Congressional leaders will appoint 12 members to the Joint Select Committee on Deficit Reduction, which will be a bipartisan, bicameral committee. This Joint Committee (sometimes referred to as the "Super Committee" or "Super Congress") is tasked with legislating at least $1.5 trillion in additional cuts to federal spending. The Committee is required to develop legislation by November 23, 2011. The legislation will be given fast-track privilege in both houses, and Congress is required to vote – without amendment – on the Committee's recommendations by December 23, 2011.

Although it is too early to tell what might come out of this Committee, there is much that is apparently still on the table, including benefits programs and tax reform. The Joint Committee will be tasked with making significant cuts in domestic spending and will, of necessity, be looking at various ways to achieve these cuts. Many of the proposed Medicare and Medicaid changes that were brought up during the debate leading to the debt ceiling agreement are likely to be brought up again before this Committee.[3] In addition, funding to implement various provisions of the Affordable Care Act (ACA) (Healthcare Reform) is also likely to be subject to review.

No one knows at this point what will emerge from this Committee. Recent proposals to change or cut Medicare that might be brought up again have included the following:[4]:

Combining Part A and B Deductibles Into a Single Annual Deductible – Different proposals sought to create a deductible between $550 and $560, impose 20% cost-sharing on all Medicare services (including Part A services that currently require either no cost-sharing, or a set co-pay), coupled with a total annual out-of-pocket cap of between $5,250 and $7,500;

Additional Means Testing of Medicare – Currently, higher income beneficiaries pay a larger share of their Part B and Part D premiums; one proposal sought to increase Part B premiums from 25% to 35% of program costs for those not already paying income-related premiums;

Eliminating First-Dollar Medigap Coverage – This proposal prohibits Medigap plans covering the first $500 of cost-sharing and limits coverage to 50% of the next $5,000 (might include policies already held by individuals);[6]

Shifting Coverage of Persons Dually Eligible for Medicare and Medicaid (Dual eligibles) to Medicaid – This proposal gives Medicaid full responsibility for providing health coverage for persons dually eligible for Medicare and Medicaid, and requires Medicaid plans to place dual eligibles in Medicaid managed care plans.

Other recent proposals have included turning Medicare into a voucher program, and limiting overall federal spending, which could cap Medicare expenditures, forcing deep cuts in the program. Whether any of these proposals will be debated by the Joint Committee is unclear, however, these proposals were recently raised as potential Medicare "fixes," which increases the likelihood that they will be considered.

Other financial pressures within the Medicare program and in the broader health care system will likely influence the Joint Committee's work. For example, while some deficit and debt reduction proposals sought to address Medicare physician payment issues, the final debt ceiling agreement does not. The current structure of the sustainable growth rate (SGR) payment formula requires that physician payment be reduced periodically, but Congress has continued to postpone such cuts on a short-term basis, in effect making each year's projected cumulative cuts even bigger. If not addressed by end of this year, physicians face an almost 30% reduction in payment starting in 2012. To delay or prevent this cut, Congress must come up with significant funding to offset the costs of maintaining current physician payment rates.[7]

The Sequestration "Trigger" – Automatic Spending Cuts

If the Joint Committee fails to come to a majority agreement on recommendations that achieve at least $1.2 trillion, or if Congress fails to enact recommendations that produce that amount, sequestration is triggered, meaning automatic across-the-board spending cuts will be implemented as of January 2013. If the Committee agrees to, and Congress approves, some cuts – but less than $1.2 trillion – the trigger would apply to the difference between the amount of the agreed-upon cuts and $1.2 trillion. In framing this process, drafters of the legislation thought that the automatic cuts would be unpalatable enough to force the Committee to agree on recommendations and Congress to adopt them. Conversely, the panel might deadlock and trigger the automatic cuts described above.

Instead of blanket across-the-board cuts to all programs, the Budget Control Act imposes exemptions from this sequestration process. Certain programs such as Social Security and Medicaid would be exempt altogether. Any cuts to Medicare would be limited to no greater than 2% of the program's costs, and any such cuts would come from payments to providers only. While this means benefits will not be directly cut through the sequestration process, it is unclear what the provider cuts would entail, and how they might affect beneficiaries, including quality of care concerns and disincentives for providers to continue accepting Medicare patients.

Next Steps

Over the coming months, this Joint Committee will be lobbied heavily by a wide range of interests. We urge everyone who benefits from and/or cares about Medicare, Medicaid, and other programs serving older and disabled Americans to pay close attention to the work of the Joint Committee, and educate its members, staff and the public about the impact that proposed changes might have on our country's social safety net.

While the Joint Committee may be unable to agree on any proposals, or Congress may reject what the Committee produces, changes to Medicare and Medicaid will continue to be debated and threats of significant harm to the program will remain. The Center for Medicare Advocacy has written about ways in which the Medicare program can achieve further savings without harming the beneficiaries it was designed to serve.[8] Solutions that promote fiscal solvency – while protecting and even strengthening the Medicare program – should be at the forefront of these discussions, including allowing the ACA to achieve its stated purposes.